The departments of Treasury and Finance believe the Australian economy remains strong despite global headwinds, including widespread inflation and the war in Ukraine.
Department secretaries Steven Kennedy and Rosemary Huxtable signed off on Pre-election Economic and Fiscal Outlook on Wednesday, as part of the Charter of Budget Honesty that was introduced by former Liberal treasurer Peter Costello.
Their independent assessment of the federal government’s financial books has proven to be little different from the budget handed down by Treasurer Josh Frydenberg last month.
“The economic and fiscal outlook has not materially changed since the publication of the 2022/23 Budget,” PEFO says.
“While there has been recent movement in some economic indicators, taking into account all available information, our judgment is that these have not materially altered the economic and fiscal outlook.”
PEFO’s forecast for the deficit for the 2021/22 financial year was $79.8 billion, the same as in the budget, but for 2022/23 it is now fractionally smaller at $77.9 billion compared with $78 billion in the budget.
Further out, the deficit for 2025/26 is now $42.9 billion rather than $43.1 billion, while other deficit projections were unchanged.
The report estimates policy decisions taken since the budget amount to $1.3 billion, although these were partly offset by the reversal of a number of decisions previously taken but not yet announced.
The contingency reserve has reduced since the budget by $338.4 million over the four years to 2025/25, which includes a partial drawdown of the provision for the potential costs of the long-term response to the February-March floods in parts of NSW and Queensland .
Economic forecasts for growth, unemployment, inflation and wages in PEFO were the same as in the budget.
These include 2022/23 predictions of economic growth of 3.5 per cent in 2022/23, an unemployment rate of 3.75 per cent, inflation at three per cent and wage growth of 3.25 per cent.
“As an energy and food exporter with very limited direct trade exposure to Russia and Ukraine, Australia is relatively well positioned to weather the effects of Russia’s invasion of Ukraine,” PEFO says.
It says the recent record prices for key export commodities will boost Australia’s income in the near term, although elevated global oil prices are flowing through to higher petroleum and other consumer prices.
“While markets expect interest rates to normalize in coming years, materially higher household and business cash savings than at the start of the pandemic are expected to see domestic demand remain resilient,” it says.